Examkin

Question

Difficulty: EasyTypes of Insurers

While studying the financial markets, a business student analyzes an insurance organization that operates to generate a profit for its investors. The company raised its operating capital by issuing shares, and its board of directors is elected strictly by these shareholders. Based on this corporate structure, what type of insurance entity is the student analyzing?

  1. A stock insurance companyAnswer
  2. B
    A mutual insurance company
  3. C
    A reciprocal exchange
  4. D
    A fraternal benefit society

Answer

A stock insurance company
The described organization is a stock insurance company. Stock insurers are corporations owned by their stockholders (shareholders) who provide the initial capital to establish and operate the company and who share in any realized profits or losses.

Step-by-Step Solution

1
Identify the key characteristics of the insurer described in the scenario.
The entity operates for profit, issues shares to raise capital, and is governed by a board elected by its shareholders.
Matching structural characteristics to legal definitions is the standard method for identifying insurer types.
2
Determine which type of insurance entity aligns with these specific corporate traits.
A stock insurance company is the only entity type that is owned by shareholders who elect the board of directors and share in the corporate profits.
This structural definition distinguishes it from mutuals (owned by policyholders), reciprocals (subscribers managed by an attorney-in-fact), and fraternals (non-profit lodge systems).

Key Concept

Stock Insurer Corporate Structure
Rate this question

Topics

Types of Insurers

More questions from this topic